"There’s a straight line between “free-trade” — a prime tenet of both right-wing Milton Friedman thinking and left-wing Bill Clinton–Robert Rubin neoliberalism — and wealth inequality in America. In fact, if the billionaires didn’t have the one (a global free-trade regime) they couldn’t have the other (your money in their pocket). And the whole global “all your money are belong to us” process has only three moving parts. Read on to see them. Once you “get it,” you’ll get it for a long time."
Read more at http://www.nakedcapitalism.com/2013/03/free-trade-and-unrestricted-capital-flow-how-billionaires-get-rich-and-destroy-the-rest-of-us.html#aaQR41lQUF7YC7Ay.99
Note: this part of the post was actually written by Gaius Publius not Yves but it's part of the same thematic:
"In its simplest terms, “free trade” means one thing only — the ability of people with capital to move that capital freely, anywhere in the world, seeking the highest profit. It’s been said of Bush II, for example, that “when Bush talks of ‘freedom’, he doesn’t mean human freedom, he means freedom to move money.”
"At its heart, free trade doesn’t mean the ability to trade freely per se; that’s just a byproduct. It means the ability to invest freely without governmental constraint. Free trade is why factories in China have American investors and partners — because you can’t bring down manufacturing wages in Michigan and Alabama if you can’t set up slave factories somewhere else and get your government to make that capital move cost-free, or even tax-incentivized, out of your supposed home country and into a place ripe for predation."
"Can you see why both right-wing kings (Koch Bros, Walmart-heir dukes and earls, Reagan I, Bush I and II) and left-wing honchos (Bill Clinton, Robert Rubin, Barack Obama) make “free trade” the cornerstone of each of their economic policies? It’s the song of the rich, and they all sing it."
Read more at http://www.nakedcapitalism.com/2013/03/free-trade-and-unrestricted-capital-flow-how-billionaires-get-rich-and-destroy-the-rest-of-us.html#aaQR41lQUF7YC7Ay.99
"Never forget — “Free trade” is a bipartisan, hands-across-the-aisle screwage of American incomes and wealth. It’s the necessary cornerstone of both left-wing and right-wing economic policy. Period."
"Recall that corporations aren’t actors per se, they are machines by which wealth is vacuumed from workers and consumers into the hands and pockets of the corps’ true owners, the CEO and capital class. As we’ve said before:
(1) Corporations are not people, and they don’t have ideas or will. They are empty vessels. If you took a neutron bomb to the home office of MegaCorp.com and let it rip, the building, filled to the brim with inventory and IP, would be empty of humans and a dead thing. You could wait for weeks for the offices to act; they wouldn’t.
(2) This is especially true today, since the corporation now serves a different function than it was designed for. At first, a corporation served to make its stockholders moderately wealthy — or at least wealthier.
Modern corporations serve one function only — to make the CEO class obscenely rich.
"The looting of global wealth into the hands of the capital and CEO class is a simple two-step process: Corps use free trade to loot the world. CEOs then loot the corps and live higher and better than the kings and presidents they control."
They link to some good posts by Krugman on the question. There is then a declaration that "Free Trade" is a tool more than an ideology.
"One last point. Framing free trade as an ideology may be technically correct in a few cases — there are true believers in almost anything (I believe in kittehs) — but if “free trade” weren’t a money machine for the wealthy, you’d never hear of it. Crickets, as the kids say."
"Put simply, the reason you heard Barack Obama tout “strong free trade” with Robert Rubin in the room, is that bankers like Robert Rubin grow obscenely wealthy by financing billionaire store-owner Billy-Bob Walton’s slave factories in Asia."
"And non-millionaire Barack Obama wants millionaire Bill Clinton’s post-presidential money — $80 million and counting. (Click the link for a stunning connection between public policy — in this case, the repeal of Glass-Steagal — and a post-presidential payday.)"
I don't wholly agree with this point. First of all, for an idea to be a tool and an ideology is not necessarily mutually exclusive. I find this abrupt dismissal of ideology as a mere smokescreen a little facile. It seems to suggest that people only espouse wrong ideas if they're in the pay of some nefarious "interests." I think this is part of it, but by itself it's one dimensional. I think Keynes was right when he spoke of the idea that in the long run it's ideas that matter-that the "practical men" of politics are so often the slave of some defunct economist-'the world is led by little else.'
You won't find a more determined detractor of Neoclassical economics than Steve Keen but he doesn't think you can understand their wrongheaded ideas because they are taking pay for analysis. They really do believe their ideas-it's an error of ideology not of interests.
I also think the overall piece may be a little one-sided. Someone in the comments section made this point:
"Now, the title of this article is way off base. The Rottschilds and Rober Barons made plenty of money under protectionist regimes. Free trade doesn’t create billionaires, and doesn’t have to necessarily destroy “the rest of us”.
That is a good point. Prior to WWII the U.S. was the most protectionist of the big economies. England was the undisputed Free Trade Queen. In addition the case can be made that global trade is largely a good thing, that the trouble is global financial trade.
"There is a fundamental difference in the way that markets operate in these different areas. Markets forgoods and services are rarely textbook-perfect, but they operate in most instances with a certain
degree of efficiency and predictability. Financial markets are fundamentally different. Market
failures arising from asymmetric information, incompleteness of contingent markets, and bounded
rationality (not to mention irrationality) are endemic to financial markets."
http://www.hks.harvard.edu/fs/drodrik/Research%20papers/essay.PDF
Krugman points out that totally unrestricted capital flows are just becoming less popular:
"Whatever the final outcome in the Cyprus crisis — we know it’s going to be ugly; we just don’t know exactly what form the ugliness will take — one thing seems certain: for the time being, and probably for years to come, the island nation will have to maintain fairly draconian controls on the movement of capital in and out of the country. In fact, controls may well be in place by the time you read this. And that’s not all: Depending on exactly how this plays out, Cypriot capital controls may well have the blessing of the International Monetary Fund, which has already supported suchcontrols in Iceland."
That’s quite a remarkable development. It will mark the end of an era for Cyprus, which has in effect spent the past decade advertising itself as a place where wealthy individuals who want to avoid taxes and scrutiny can safely park their money, no questions asked. But it may also mark at least the beginning of the end for something much bigger: the era when unrestricted movement of capital was taken as a desirable norm around the world.
http://www.nytimes.com/2013/03/25/opinion/krugman-hot-money-blues.html?partner=rssnyt&emc=rss&_r=1&
Today, in a totally unprecedented move for an EU country, we read that Cyprus has installed capital controls to stem money leaking from the country.
"Cyprus is to become the first eurozone country ever to apply capital controls – with limits on credit card transactions, daily withdrawals, money transfers abroad and the cashing of cheques – intended to prevent a vast outflow of euros when its banks open on Thursday."
"Under drastic measures that some analysts say are incompatible with monetary union, depositors would be able to withdraw no more than €300 in cash each day, said people familiar with the move. Transfers of more than €5,000 would require permission from the central bank."
"Overseas credit card transactions would be limited to €5,000 per month but unrestricted in Cyprus. And there would be a ban on people taking more than €3,000 of bank notes out of the country per trip."
"Cypriot banks will reopen on Thursday morning for the first time in almost two weeks and stay open for six hours. Without controls, officials fear a run on deposits after Nicosia agreed to a €10bn bailout that imposes losses on big depositors – a first in the three-year-old eurozone debt crisis."
"While the capital controls are designed to expire after seven days, people with knowledge of the matter said the government would continue to renew the curbs on a weekly basis for as long as necessary."
“Otherwise whatever money is left in the banks will fly out of Cyprus,” said one person close to the central bank.
http://www.ft.com/intl/cms/s/0/9901f6ce-96f2-11e2-a77c-00144feabdc0.html#axzz2OqSUha1V
Meanwhile, this morning with the banks opening, the deposit withdrawals have begun.
http://www.ft.com/intl/cms/s/0/f13edbfc-9780-11e2-b7ef-00144feabdc0.html#axzz2OqSUha1V
It's important to keep in mind that the basis for promoting free trade stems from the premise of barter economy and is largely correct. If pushed on the topic, I doubt Krugman and many others would oppose free trade of goods and services. The type of trade being highlighted here is primarily financial in nature and, IMO, an entirely different beast.
ReplyDeleteMoney and financial assets, when unrestricted, can move into and out of an economy incredibly fast. Imagine the same for actual goods or services. Pretty tough, right? This problem is compounded by crazy tax laws and regulations that promote financial flows, to a significant degree, on the basis of avoiding taxes (not necessarily returns).
My basic point is that economists and others should be careful not to throw the baby out with the bath water, i.e. promote protectionism of goods and services to prevent the flow of financial capital.
So we want free trade in goods and services but we want to place limits on financial assets?
ReplyDeleteI definetly felt that Yves went a little far in her piece and probably did get into baby out with the bathwater territory.
Nice to hear from you again Josh. Are you done with finals?
I don't think free flow of financial capital is too much of an issue for the US and other large countries. However if you look at smaller developed and developing countries (where external financial capital flows can be multiples of GDP), than some form of managed trade may be desirable.
DeleteCyprus' issue isn't that Russians were buying to many goods and services from them or that Cyprus was purchasing too many goods and services from Greece. The trouble was huge financial inflows to Cyprus being invested with leverage in Greece sovereign debt, housing, etc. Similar issues were behind the Asian currency crises and numerous others in recent decades.
As for midterms, I am done for the time being. Unfortunately other projects are keeping me very busy, hence the lack of blogging/commenting. Hopefully I will be able to pick it up a bit more in the coming weeks.
What does seem true though is this. In the 2001 recession we had some major structural changes in the economy. While it's offiically rememberd as being shallow and short, it really was pretty bad.
ReplyDeleteIt was the "jobless recovery" and even when we finally regained the 3 million lost jobs they were mostly much lower paying, lower quality jobs. It was really the first prolonged "white collar recession."
1991 had been the first white collar recession but we came back from that. It turned out to be a dress rehearsal. 2001 was the real thing. Many white collar workers lost their jobs and never got anywhere near their former status. The time when all you needed to guarantee yourself a successful life was a college degree was over.
It seems to me that there were two chief causes:
1). The Internet boom led to strong productivty growth after over 20 years of productivty stagnation between 1973-1995. However, this heightened productivity greatly reduced the number of workers needed. Many workers including white collar workers were rendered redundant by the new technoglogy. Companies simply didn't need the level of workers they previously did.
2). Increased global trade exacerabated this trend. Many of the old white collar jobs were outsourced to India, etc.
Overall it led to much lower job security as management could always relocate to a country with lower wages and less regulation.
I think that someone like Stiglitz is on the right track with his idea of a structural change in the economy due to these phenomena.
I do agree that we don't want to throw out the baby with the bathwater as Stigltiz himself would agree. HOwever, it does seem to me this has made the labor market much tougher for workers permanently-or at least for the foreseeable future.